Who benefits when a city government improves something? The bike lanes on Sonnenallee, extending the U5 from Alexanderplatz to Hauptbahnhof, investing 609 million in 86,000 Kita places. On the one hand, the community benefits, they get to cycle more safely, commute easier, have more access to childcare. On the other hand, this increases the value of land and rents around, so it benefits the nearby owners.

Berlin's Prosperity Paradox

Recent headlines tell a troubling story: "Transport, culture and tax: How Berlin's budget cuts could affect you" (The Local, 2025). After years of public investment that transformed Berlin into a thriving tech hub and cultural center, the city now finds itself needing to cut €3 billion from its budget—potentially eliminating the €29 public transport ticket, reducing cultural funding, and increasing tourist taxes.

This paradox reveals the fundamental problem: Berlin is being choked by its own prosperity. As the city invested in better infrastructure, cultural amenities, and public services, it made Berlin more desirable. But instead of this increased desirability benefiting all Berliners, much of the value was captured by landowners through rising property values and rents. Meanwhile, the productive economy that generates actual tax revenue faces increasing housing costs that limit growth.

Modern Georgists refer to this as privatising public wealth via land prices, and socialising private wealth via taxes (an example of a similar discussion can be found here on earthsharing.ca)

So what happens is we're taxing productive activities, and rewarding unproductive activities like land ownership and speculation.

Work is taxed through income tax, businesses are taxed on their profits, and anyone who buys anything ever is a taxpayer thanks to VAT. When this tax is collected, it's used to improve the community, which is a desirable goal. But under this system, we're caught in a self-defeating cycle: the productive economy is taxed to fund improvements, only to then pay again through higher rents and land prices for access to those very improvements. And as we're seeing in Berlin, those rent increases can be enormous, effectively canceling out the productivity gains that funded them in the first place.

The budget cuts we're now facing are a direct consequence of this system: a city that created tremendous value through public investment now cannot afford to maintain those investments because it failed to capture the land value increases it generated.

Henry George called this back in the 19th century:

"Take now...some hard-headed business man, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?" He will tell you, "No!" "Will the wages of the common labor be any higher...?" He will tell you, "No the wages of common labor will not be any higher..." "What, then, will be higher?" "Rent, the value of land. Go, get yourself a piece of ground, and hold possession." And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse."

Worth noting at this point, here is an empty plot of land directly on Alexanderplatz, as seen on the left here surrounded by hoarding:

... and here's a graph of its land value according to BORIS:

Not being content with merely identifying the problem, Henry George also proposed a solution: a Land Value Tax. This approach would address rising rents and land prices directly, but its true power emerges when combined with reductions in taxes on productive activities. If we're currently caught in a self-defeating cycle of taxing production while subsidizing land speculation, we should break that cycle at both points. Add a citizen's dividend (also known as a UBI, Universal Basic Income) funded by land value, and suddenly we have a system that rewards productivity, discourages speculation, and ensures everyone benefits from our shared prosperity. It's difficult to imagine a more elegant solution that's so tantalizingly within reach.

In Henry George's words:

"A tax upon land values is, therefore, the most just and equal of all taxes. It falls only on those who receive a unique and valuable benefit from society. And it falls on them in proportion to the benefit they receive. It is taking by the community, for the use of the community, from the value that is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, equality will be attained. No citizen will have an advantage over any other, except through personal industry, skill, and intelligence. People will gain what they fairly earn. Only then, and not until then, will labor get its full reward, and capital its natural return. "

— Henry George, Progress and Poverty, Book VIII, Chapter 3

We've seen austerity repeatedly fail across Europe since 2008. Berlin now faces the same spiral: public investment creates value, private landowners capture that value, and the city is forced to cut services that made it desirable in the first place.

This isn't inevitable. A Land Value Tax would allow Berlin to recapture the value it creates, funding public services without burdening productive activities. Combined with reductions in income and business taxes, it would create a virtuous cycle instead of our current self-defeating one.

Imagine a Berlin where:

• Public transport remains affordable and expands rather than contracts
• Cultural funding increases, maintaining Berlin's creative spirit
• Housing becomes more affordable as speculation decreases
• Empty lots like the one on Alexanderplatz are developed rather than hoarded
• Entrepreneurs and workers keep more of what they earn

This isn't utopian thinking—it's sound economics that aligns incentives with community wellbeing. The question isn't whether Berlin can afford this change, but whether it can afford not to make it.